Explore Your
HMO Buy to Let Mortgage Options

Room Rental Valuation:

• Instead of valuing the entire property’s rental income, lenders focus on the potential rent for each individual room.
• The lender typically instructs a surveyor specializing in HMOs to assess the achievable rent for each room based on size, location, amenities, and local rental market conditions.
• The total potential rental income is then calculated by summing up the estimated rent for all rooms.

Stress Testing:

• Lenders apply stress tests to the calculated rental income to ensure it can cover the mortgage repayments even under less favorable conditions.
• This stress test helps the lender ensure that the property can generate enough income to support the mortgage even if some rooms are vacant or if interest rates rise.

Supporting Evidence:

• Lenders may require additional evidence to support the rental valuation, such as comparable rental data for similar HMO properties in the area.
• They may also ask for details about the current tenants, including their tenancy agreements and rental payment history.

Understand Your Needs and Budget:

• Determine your maximum budget for the property, taking into account the deposit, purchase costs, potential renovation costs, and ongoing expenses.
• Identify your target location based on rental demand, property values, and your investment strategy.
• Consider the type of HMO you want to invest in (e.g., student let, professional let) and the number of rooms you aim to rent out.
• Decide on your preferred mortgage type (fixed-rate, variable-rate, etc.) based on your risk tolerance and financial goals.

Research and Compare Lenders:

• Not all lenders offer HMO buy-to-let mortgages, so it’s important to focus your research on those who specialize in this area.
• Use online comparison tools and mortgage broker websites to get an overview of the available deals and their terms.
• Pay attention to interest rates, fees, loan-to-value (LTV) ratios, and specific requirements for HMOs

Consult a Specialist Mortgage Broker:

• A mortgage broker specializing in HMO buy-to-let mortgages can be invaluable in your search for the best deal.
• They have access to a wider range of lenders and products, including exclusive deals not available to the public.
• They can assess your individual circumstances, advise you on the most suitable mortgage options, and negotiate with lenders on your behalf.

Assess the Overall Cost:

• Don’t just focus on the interest rate. Consider the total cost of the mortgage, including arrangement fees, valuation fees, legal fees, and any other charges.
• Factor in potential costs like licensing fees, insurance premiums, and ongoing maintenance expenses.
• Use an HMO mortgage calculator to estimate your monthly repayments and overall costs.

Read the Fine Print:

• Carefully review the terms and conditions of each mortgage offer, paying close attention to any restrictions or penalties related to early repayment, overpayments, or changes in property use.

By following these steps and seeking expert guidance, you can increase your chances of finding the best HMO buy-to-let mortgage deal that aligns with your investment goals and financial circumstances

Standard Fees (Similar to buy-to-let mortgages)

• Arrangement Fees: Charged by the lender for processing and setting up the mortgage. These can be a percentage of the loan amount or a fixed fee.
• Valuation Fees: Charged for assessing the property’s value. HMO valuations may be more expensive than standard buy-to-let valuations due to the specialized knowledge required.
• Legal Fees: Cover the costs of legal services related to the mortgage and property purchase.
• Broker Fees (if applicable): If you use a mortgage broker, they may charge a fee for their services.

HMO-Specific Fees:

• Higher Interest Rates: HMO mortgages often have slightly higher interest rates than standard buy-to-let mortgages (around 0.5% on average) to account for the perceived higher risk.
• Licensing Fees: If your HMO requires a license, you’ll need to pay a fee to the local council for the application and renewal.
• Increased Insurance Premiums: Landlord insurance for HMOs can be more expensive than standard buy-to-let insurance due to the higher occupancy and potential for more claims.

Additional Costs to Consider:

• Refurbishment and Maintenance Costs: HMOs often require more frequent maintenance and repairs due to higher occupancy and wear and tear.
• Void Periods: Periods of vacancy between tenancies can lead to lost rental income, affecting your overall profitability.
• Letting Agent Fees: If you use a letting agent to manage your HMO, you’ll need to factor in their fees.

It’s crucial to research and compare different lenders and their fee structures to find the most cost-effective option for your HMO buy-to-let mortgage. A specialist mortgage broker can help you understand the various costs involved and ensure you’re getting the best deal for your specific circumstances.

Standard Buy-to-Let Documents

• Proof of Identity and Address: Passport, driver’s license, recent utility bills, or bank statements.
• Proof of Income: Recent payslips or SA302 tax calculations for employed individuals. For self-employed individuals, recent tax returns and accounts.
• Bank Statements: Typically 3-6 months’ worth of personal and business bank statements, if applicable.
• Details of Existing Properties (if any): Tenancy agreements, mortgage statements, and property schedules for any existing buy-to-let properties.

HMO-Specific Documents:

• HMO License: A valid HMO license from the local council, if applicable.
• Property Floor Plans: Detailed floor plans of the property, showing the layout of rooms and shared facilities.
• Fire Risk Assessment: A recent fire risk assessment carried out by a qualified professional.
• Gas Safety Certificate: A valid gas safety certificate issued within the last 12 months.
• Electrical Installation Condition Report (EICR): A report on the condition of the electrical installation, ideally no older than five years.
• Energy Performance Certificate (EPC): A valid EPC with a minimum rating of E.

Additional Documents (Depending on Circumstances):

• Business Plan: If you’re a new landlord or investing in a large HMO, a business plan outlining your strategy and financial projections may be required.
• Portfolio Schedule: If you’re a portfolio landlord, a schedule of your existing properties and their financial performance.
• Proof of Deposit: Evidence of where your deposit funds are coming from.

Remember that the specific documents required may vary depending on the lender and your individual circumstances. It’s always best to check with the lender or a mortgage broker for a complete list of required documents.